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The Constitutionality of the Fiscal Responsibility and Economic Revitalization Law of Puerto Rico

The Governor sent to the Legislature the “Law of Fiscal Responsibility and Economic Revitalization of Puerto Rico” that creates a Fiscal Supervision and Economic Renewal Board. Aside from the undesirability of this Board, there are certain parts of the statute that are clearly unconstitutional and would very likely be struck down by the PR Supreme Court when challenged in Court. Here is my take on the constitutional conflicts in the law.

Article 201 creates the Fiscal Supervision and Economic Recovery Board of Puerto Rico. It is created as a governmental instrumentality with its own legal personality, fiscal autonomy and administratively and independent from the Commonwealth, whatever that may be. The Board is exempted from the following state laws:

The PR Government Personnel law;

The PR Labor Relations law for the public service;

The PR law for hiring of Professional and Consulting Services for Government Agencies;

The PR Government Accounting law;

The PR law to Regulate Certain Government Contracts for Financing and Lease of Movable Property;

The PR Office of Budget and Management law

The PR Law of Uniform Administrative Procedures;

The Law of the Institute of Statistics;

The Government Transition law;

The PR Government Ethics law;

The Independent Prosecutor’s law.

Being exempt from PR personnel laws, the hiring of professionals and consulting services etc., is questionable. Those employees affected by political firings still have a cause of action pursuant to the doctrine of Rutan v. Republican Party of Illinois, 497 U.S. 62 (1990) and Branti v. Finkel, 445 U.S. 507 (1980) as violations of the First Amendment. In addition, those affected by the legal guarantees of hiring of professionals, budget and management etc., could also be in violation of Article II, Section 7 of the Puerto Rico Constitution that guarantees citizens the equal protection of the law. This section protects against classifications that are irrational or arbitrary, see A.A.R. Ex Parte, 2013 TSPR 16. It prohibits unjustified unequal treatment, see, Partido Acción Civil v. ELA, 150 D.P.R. 359, 378 (2000). Moreover, “the equal protection clause guarantees that taking in consideration the purpose and reach of the law, to be treated in a similar fashion by the State.” As stated before, if suppliers of services to the state are not to be treated equally by the Board, they do not have equal protection in violation of the Constitution.

In addition, the Board’s exemption from the Administrative Procedures Act could be unconstitutional since it would make its decisions unreviewable, which case law in PR frowns on, see, Comisión de Ciudadanos al Rescate de Caimito v. G.P. Real Property, 173 D.P.R. 998 (2008).

Article 203 deals with the Board’s operations. The Board will establish its own rules to determine when its meetings will be open to the public, but at all times “adequate records” will be accessible to the public as to all of the Board’s business. This last sentence could create constitutional issues since according to PR case law, all documents of the Government of Puerto Rico are considered public documents and therefore accessible to the public. It is incumbent on the Government to demonstrate which documents are not accessible to the public and why. See, Santiago v. Bobb, 117 D.P.R. 153 (1986).

Article 208 deals with the process for the approval of the Economic Development and Fiscal Plan. On or before the end of the second trimester of fiscal year 2016 (December) or once all the members of the Board have been named, whatever is last, the Working Group must present to the Board (not the Governor), for its review and approval a proposal for the consolidated Five (5) Year Economic and Fiscal Growth. The objectives of this plan must be:

Establish structural reforms with the purpose of reestablishing economic growth and the competiveness of the Commonwealth;

Eliminate the financing gaps and reduce the debt of the Supervised Entities to sustainable levels;

Regenerate the institutional credibility of Governmental entities by optimizing the process of formulating and executing budgets and the transparency of information.

These three objectives require comment. If PREPA and PRASA are exempted from Board supervision, how is it going to establish the reforms needed for economic growth and competitiveness of PR? Is this objective precisely what the Executive in PR’s constitution supposed to do? Isn’t budget formulation a duty of both the Executive (Art. IV, section 4, paragraph 8 “He shall present to the Legislative Assembly, at the beginning of each regular session, a message concerning the affairs of the Commonwealth and a report concerning the state of the Treasury of Puerto Rico and the proposed expenditures for the ensuing fiscal year. Said report shall contain the information necessary for the formulation of a program of legislation” and of the Legislature (Art. III, section 17). Although delegation of the Executive power has been deemed constitutional, Domínguez Castro v. ELA, 178 D.P.R. 1, 49 (2010), it was in the context of reviewable decisions. Inasmuch as we see the law has no provision for judicial review, its constitutionality is highly questionable. In addition, a 5-year plan can be replaced by the incoming legislature. Hence, this part of Article 208 raises Constitutional questions.

Article 208 gives the Board will have 30 days to review the Plan and if it complies with the three aforementioned requirements, it will be approved. If not approved, it will be sent back to the Working Group, which will have 20 days to review it and make changes and sent to the Board again. Once it is approved by the Board, it will be submitted to the Governor by the Working Group and if approved by him it will become an Executive Order and the plan will be known as “The Economic and Fiscal Development Plan”. Those areas that require legislative action will be submitted to the Legislature. If the Working Group thinks the plan must be amended, it shall be submitted again to the Board for approval. Since an Economic and Fiscal Development plan that includes issues of the budget has to be started in the House, Article III, section 17, it seems to me that this procedure for the creation of the Plan circumvents the Legislature and deprives it of the powers it has been specifically conferred by the Constitution and hence of dubious constitutionality.

Article 210 calls for a the Treasury Department to present reports to the Board within 30 days of the end of each trimester of the Fiscal Year and the Board shall evaluate if each Overseen Entity has complied with the Plan or adjust the budgets. In the case of the Public Corporations, this will be done by its Governing Board. If the Fiscal Supervision Board does approves the reports, then 15% of the 2.5% of its budget which has been retained will be released, then 20% etc. In other words, 2.5% of each agency’s budget is sequestered to guarantee compliance with this law. In law 66, however, a similar process was done and several agencies, including the GDB and Treasury did not comply and no sanctions were imposed by the Office of Management and Budget, which is the entity who will have the reserved budget. An Overseen Entity can request reconsideration of the Board’s findings but there is no procedure to have these decisions reviewed by a Court system which creates the Constitutional tensions I mention above. In addition, it deprives the Legislature of the power to control the budget, also in conflict with the Constitution.

In synthesis, there are several sections of the Board law that create constitutional conflicts. In addition, it creates a totally new bureaucracy to the tune of at least $12,000,000 a year, with no governmental controls and partial immunity from suit. This is a recipe for fiscal irresponsibility and the squander of our very limited public funds to do the job that Constitutionally belongs to the Governor and legislatively to the Office of Budget and Management. Far from providing certainty and confidence to the investors, this is more of what has brought PR to its knees, governmental irresponsibility and dissipation.